Climate finance in SA needs to increase by up to fivefold from the current annual average of R131bn if the country is to meet its globally committed climate targets by 2030.
The SA Climate Finance Landscape report released by the presidential climate commission on Wednesday, which covers the years from 2019 to 2021, estimates that SA requires on average R334bn a year to meet its net-zero goal by 2050. In the nearer term, the country will need R535bn a year over the next seven years to meet its nationally determined commitments (NDCs) by 2030.
According to the country’s NDCs — the climate action plans that countries have committed to under the UN’s Paris Agreement to limit the temperature increase to 1.5°C — SA has committed to reduce emissions by 22%-33% by 2030.
To achieve this, there needs to be a major shift from coal-powered energy generation to low-emission, renewable energy sources.
Jack Radmore of GreenCape, which together with the Climate Policy Initiative conducted the research and provided the data and insights for the report, said that despite the funding gap, it is encouraging to see the majority of investment go towards renewable energy.
“Continued load-shedding in SA, falling technology costs and increasing grid electricity prices have resulted in clean energy remaining the dominant destination sector for investment, receiving more than 63% of the total tracked climate finance flows,” Radmore said.
Another key finding was that domestic sources accounted for 91% of tracked climate finance, while international sources accounted for only 9%. The private sector (predominantly commercial banks) accounted for 86% (R113bn a year) of annual investments.
Most climate finance flows (about 75%) were facilitated through market-rate debt instruments, with an average cost of capital of between 10% and 12%. Of the total debt, 59% went to the clean energy sector, the report said.
Standard Bank SA CEO Lungisa Fuzile, who serves on the commission, said the finding that most climate finance has come from domestic sources is a “powerful message”.
“I suspect there persists in public discourse a wrong impression that [SA’s] transition will be financed externally. At this point the evidence in this report suggests this is not true.
“Foreign funding is important — we need it and need lots of it — but this points to the strength and sophistication of SA’s financial markets and private sector. We must be proud of this and leverage it as a strength as we launch into the just transition,” he said at the launch of the report.
Fuzile said “debt finance sometimes gets frowned upon” and while it is important not to burden future generations, debt financing used “within reason” and for a good purpose “can finance initiatives with positive intergenerational impact”.
“We must, where necessary, encourage the use of debt instruments to finance various aspects of the just transition, but at the same time guard against raising debt and then wasting that money,” he said.
The previous SA Climate Finance Landscape report, which covered 2017 and 2018, was published in 2021.
According to Radmore, average annual tracked climate finance in SA saw a more than twofold increase in the period from 2019 to 2021 compared with 2017 to 2019, increasing from R62bn a year to R131bn.
SA needs R535bn a year to meet targetserasmusd@businesslive.co.za
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